Southeast Asian currency crisis and India

Large parts of Southeast Asia experienced very rapid economic growth over the past decade. The oft repeated question was-can India replicate the East Asian model of development? Today most of these economies are still reeling under the impact of the severe currency crises brought about by the Thai devaluation over a year ago. The IMF-led multibillion dollar bailout programs have been unable to prompt an economic recovery. Ironically, India is amongst the few countries which were not badly engulfed by the financial crisis, alongwith China and Taiwan. No amount of appeal to "strong funda mentals" and the like can explain the resilience of the Indian (and Chinese) economy. The slower and more cautious pace of financial liberalization in India is one important reason for this. Over the years. there is growing evidence to show that the benefits of free capital movements are much fewer in comparison with the costs. The Southeast Asian Crisis has emphatically demonstrated to the world that full capital account convertibility can itself be a serious problem rather than a solution.

However, instead of learning lessons from the Mexican and the Southeast Asian crisis, and conse quently adopting policy measures to avert a similar crisis in the country, the Indian government is going ahead with its plan of financial liberalization.